Why unions are needed for US workers

THE CENTREAL issue in American politics is the economic security of the middle class and their sense of opportunity for their children. As long as a substantial majority of American adults believe that their children will not live as well as they did, our politics will remain bitter and divisive.

Surely related to middle-class anxiety is the slow growth of wages even in the ninth year of economic recovery. The Phillips curve - which postulates that tighter labour markets lead to an acceleration of wage growth - appears to have broken down. Unemployment is at historically low levels, but the Bureau of Labour Statistics reported on Friday that average hourly earnings last month rose by all of three cents - little more than a 0.1 per cent bump. For the past year, they rose by only 2.5 per cent. In contrast, profits of the S&;P 500 are rising at a 16 per cent annual rate.

What is going on? Economists don’t have complete answers. In part, there are inevitable yearto-year fluctuations (profits have declined in several recent years). And in part, BLS data reflects wages earned in the United States, even though a bit less than half of profits are earned abroad and have become more valuable as the dollar has declined relative to other currencies. And finally, wages have not risen because a strengthening labour market has drawn more workers into the labour force.

But I suspect the most important factor is that employers have gained bargaining power over wages while workers have lost it. Technology has given some employers - depending on the type of work involved - more scope for replacing American workers with foreign workers (think outsourcing) or with automation (think boarding-pass kiosks at airports) or by drawing on the gig economy (think Uber drivers). So their leverage to hold down wages has increased.

On the other hand, other factors have decreased the leverage of workers. For a variety of reasons, including reduced availability of mortgage credit and the loss of equity in existing homes, it is harder than it used to be to move to opportunity. Diminished savings in the wake of the 2008 financial crisis means many families cannot afford even a brief interruption in work. Closely related is the observation that workers as consumers appear more likely than years ago to have to purchase from monopolies - such as a consolidated airline sector or local health-care providers rather than from firms engaged in fierce price competition. That means their pay cheques do not go as far.

On this Labour Day, we would do well to remember that unions have long played a crucial role in the American economy in evening out the bargaining power between employers and employees. They win higher wages, better working conditions and more protection from unjust employer treatment for their members. More broadly, they provide crucial support in the political process for programmes such as Social Security and Medicare that benefit members and nonmembers alike. (Both were passionately opposed by major corporations at their inception.)

Today, only 6.4 per cent of private-sector workers belong to a union - a decline of nearly twothirds since the late 1970s. This is the one important contributor to the decline in the relative power of labour, especially those who work with their hands. Workers seeking gigs on their own are inevitably less secure than a group collectively representing their interests. The decline in unionism is also a contributor to the pervasive sense that our political system is too often for sale to the highest bidder.

What can be done? This surely is not the moment for lawmakers to further strengthen the hand of large employers over their employees.

Sooner or later - and preferably sooner - labour-law reform should be back on the national agenda, especially to punish employers who engage in firing organisers. We should also encourage union efforts to organise people in nontraditional ways, even when they do not involve formal collective bargaining.

And policymakers should support institutions such as employee stock ownership plans, where workers have a chance to share in profits and in corporate governance. — WPBloomberg